Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Wow! Holy Moly Batman! This morning’s Feb employment report blew the doors off all the forecasts; it is after all the employment report that is most always a shock of some kind. The unemployment rate in Feb declined to 7.7% frm 7.9% in Jan and down 0.1% more than thought. Non-farm jobs increased 236K, consensus was 171K; non-farm private jobs increased 246K, consensus +195K. Non-farm jobs now at the highest since last Nov and the unemployment rate the lowest since Dec 2008. As we noted yesterday, employment reports don’t usually come close to forecasts, thus we normally have a lot of volatility when the data is reported. The revisions to previous reports; Dec revised up 23K, Jan revised lower by 38K. Today’s report showed factories added 14,000 workers in February, compared with a projected 9,000 advance and following a 12,000 increase in the previous month. Auto manufacturing, reflecting car and truck sales, running close to the best pace in five years. Employment at private service-providers jumped 179,000 last month. Construction companies added 48,000 workers, reflecting a 17,100 gain in payrolls at residential trade contractors. Retailers took on 23,700 employees. At 9:00 this morning the 10 yr note yield climbed to 2.08%, the highest rate in over a year, and finally takes the bullish bias away from those still holding that rates would decline. 30 yr MBSs at 9:00 -39 bp frm yesterday’s close. The strong employment report also brings the Fed back into focus in terms of ending its QE sooner than what was thought just 24 hours ago. One more month of strong employment data in March will likely cause the Fed to begin planning in earnest its gradual reduction of monthly Fed purchases of MBSs and treasuries. The report sent Europe’s stock market higher and the US key indexes up; at 9:00 the DJIA futures were up 100 points frm yesterday’s close; the S&P traded just shy of its all-time high. At 9:30 the DJIA opened +68, NASDAQ +15, S$P +7; 10 yr note 2.07% +7 bp and 30 yr MBSs -19 bp frm yesterday’s close. By 10:00 markets haven’t changed much from early trading; stock indexes actually lower than at the open. The 10 yr note at 2.06% down frm 2.08% on the initial reaction to employment data. This week has not been good for the interest rate markets, either fundamentally or technically. The bond and mortgage markets are in new low territory on prices and new highs for yields on the recent move higher in rates. Hard to find anything good this week unless one looks at their 401K, stock indexes continue to climb. The DJIA making new highs everyday while the broader market, the S&P 500 still not yet in new high territory, 1565 is the current all-time high, trading at 1546. There is a strong possibility markets will reverse their direction by the end of the day; however it would not change the bearish momentum in the interest rate markets in the wider perspective. Since the open key indexes have lost ground and rate markets are off their worst levels.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Weekly jobless claims this morning were better than forecasts, claims declined 7K to 340K with estimates for an increase of 11K. The 4 wk average now at 348K, suggesting that the employment sector while still weak is getting better---slowly. Claims today declined to a six week low. People collecting emergency and extended payments decreased by about 225,400 to 1.78 million in the week ended Feb. 16. The reaction added to stock index futures that prior to the 8:30 report were flat. The interest rate markets sold off on the news taking the 10 yr note to 1.97% at 9:00, up 3 bp frm yesterday’s increase of 4 bp in yield. 30 yr MBS prices at 9:00 -21 bp frm yesterday’s decline of 26 bp. Other data at 8:30; Q4 productivity revision -1.9% frm -2.0% originally reported. Q4 unit labor costs +4.6%; weaker productivity generally increases unit labor costs. January US trade deficit at -$44.45B slightly higher than expected. The three reports didn’t cause any movement in markets, it is all about the decline in weekly claims this morning. At 9:30 the DJIA opened +18, NASDAQ +2, S&P +1; 10 yr note 1.97% +3 bp, 30 yr MBSs -21 bp. In Europe both the Bank of England and the ECB left their interest rates unchanged. There were a few out there thinking the ECB might lower rates. Europe’s stock markets were supported today on the Fed Beige Book released yesterday afternoon saying the US economy is growing. European Central Bank President Mario Draghi said data suggest the region’s economy will stabilize this year. Draghi’s comments pressured German bunds, the 10- year bund yield climbed three basis points to 1.49%. On the political front; the President picked up the dinner tab last night for he and 11 top Republicans, he invited them in a gesture to resume talks on long term deficit reduction. This afternoon he will lunch with Paul Ryan, Ryan is chair of the House Budget Committee. The President isn’t giving up on tax increases matching spending cuts, Republicans still staunchly saying no tax increases. At least they are eating well these days. The rest of today should be relatively quiet with the Feb employment report out at 8:30 tomorrow. The report is historically volatile, it more the norm that the data will not meet the forecasts in either direction than estimates on target. The report usually leads to high volatility in markets. The current “consensus” estimates are for non-farm payrolls +171K, non-farm private jobs +195K, the unemployment rate at 7.8% down frm 7.9% in Jan. The outlook for lower interest rates has faded quickly, as long as equity markets continue to draw money in the bond market has little chance of improving. Since last Friday the 10 yr note yield as of 9:30 today has increased 13 basis points in yield, 30 yr MBSs have lost 67 bp in price and up 6 bp in yield. Technically the 10 yr and 30 yr MBSs have lost all of the momentum that we had last week. We have noted numerous time her that we don’t expect interest rates to decline much, especially with US and global equity markets rallying. The Feb ADP private jobs report yesterday better than expected has encouraged traders to increase the forecasts for tomorrow’s BLS employment report. Europe, China and in the US central bankers have been but with more optimistic outlooks, investors turning away from low return fixed income investments. The stock market is technically overbought and due for a pullback; when it actually does occur the bond market will see some improvement but not much. The bellwether 10 yr is very unlikely to fall below 1.85% at best. Any improvement in the rate markets should be seen as opportunity and not the beginning of any major change in sentiment.

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Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com It isn’t good for interest rate markets when the stock markets are on a rampage higher, that of course should not be news. Yesterday the DJIA made a 200 year high, this morning in early trading in futures markets the key US indexes were adding to yesterday’s gains and US interest rates are higher. From a technical perspective we warned a couple of days ago that the 10 yr note was finding strong resistance at 1.85%, trying five times in six sessions and failing; all momentum oscillators had moved to overbought levels, and the MBS price finding resistance at key chart points and unable to break above its 40 day average. Taking a broader, more general look at mortgage rates; going back to Jan 25th 30 yr mortgage rates have changed very little. In terms of price 30 yr MBSs have traded in a 100 basis point range and about 10 basis point rate range. Rather tame when viewed in the wider perspective. At 8:15 this morning ADP payroll people released its data on non-farm private jobs, better than what had been forecast. ADP said private jobs grew by 198K in Feb and Revised the Jan growth from +192K to +216K. The better report is in line with the estimates of private jobs from the BLS on Friday (+195K), the estimate for all non-farm jobs is +171K indicating markets are expecting more cuts in government employment. The unemployment rate in Feb is expected at 7.8% frm 7.9% in Jan. At 9:30 the DJIA opened +41, NASDAQ +8, S&P +4. 10 yr note -11/32 at 1.94% +4 bp and 30 yr MBS prices down 25 bp. At 10:00 Jan factory orders were expected -2.2%; orders about right on, -2.0%; no reaction to the report as usual. This afternoon at 2:00 the Fed will release its Beige Book, the Fed’s economic report from the 12 Fed districts. More detail by region but generally nothing surprising in the report. The Book is used by the FOMC when it meets in two weeks. The weekly MBA mortgage applications increased last week after declines in the previous three weeks. The overall composite index +14.8%; purchase index +15.0% and the refinance index +15%. The gains reverse a run of prior declines to lift the purchase index back to where it was in early February and the refinance index back to where it was in mid-January. Last week rate market declined, doesn’t take much to motivate buyers these days. The high percentage gains though are gains compared to the last few weeks of declines in apps. Yes, the DJIA made a new high yesterday but it isn’t a new high when adjusted for inflation. To make an inflation adjusted high the DJIA has to go up another 8.0%. The average stock price earnings ratio is 14, 20% less than when the stock market was at its high in 2007. Based on that and the inflation adjusted level the index has a lot further to go if one assumes earnings will be as good as in 2007. Longer maturity treasuries (10 yr note) are setting up another wide range similar to the 10 bp yield range that held the rate in check from late Jan until late Feb (2.05% - 1.95%); the new range on the note 1.95% - 1.85%. Our longer range outlook remains the same; interest rates won’t increase much frm present levels, and will not fall much either. There is little reason now to expect another big decline in rates. The forecasts echoed by a few that the 10 yr may decline to 1.50% and mortgage rates down 25 bp frm here are likely to be disappointed. With the Fed supporting rates with the QEs investors want more return; the equity markets are the only markets where higher returns are potentially possible.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Prior to the actual open at 9:30, the DJIA futures was trading in new all-time high, the 10 yr -6/32 at 1.90% and 30 yr MBSs -6 bp frm yesterday’s close. At 9:30 the DJIA opened +34 just a few points shy of the record then jumped over it a few minutes later; now it is all about the close; at 9:45 the DJIA index was the highest in the 200 yr history of the index. The NASDAQ opened +20, S&P +7; the 10 yr note yield at 9:30 -4/32 at 1.89% +1 bp, 30 yr MBS price -3 bp frm yesterday’s close. Four times in the past five sessions the 10 yr note yield fell to 1.84%, four times it has failed to break below and the yield increased. Yesterday the 10 declined to 1.84% failed and closed at 1.88%. 30 yr MBSs also failing at critical resistance levels; unable to move above its 40 day average and failing to break high prices going back to Jan 25th. Both markets are overbought based on momentum oscillators. This morning prior to the 9:30 open the S&P traded at a new high for the five year rally. US financial markets are at critical levels; technically and fundamentally. Interest rates stuck in a narrow range and not likely to decline much; the stock market about to make new highs today. Meantime the President is backing off from the doomsday forecasts of the sequester; no one believes the pronouncements of 170K jobs about to be lost, or that air planes won’t fly. Are there any bears still in the stock market?, any bulls in the bond market? When everyone gets on one side of the boat, the odds of tipping over become very high. China is moving toward slowing growth to 7.5%, concentrating on domestic spending at home and less on global exports. 7.5% growth is very strong but well off double digit growth over the past few years. Property values have exploded in China, the government is set now on new controls to control and tame the sector. The country facing an inflation bubble in property values that according to it’s leaders will lead to overall rampant inflation. Prior to the US service sector index this morning, in Europe the sector declined but not as much as expected. Retail sales in Germany were better than expected, up 3.1% and helped drive the EU sales up 1.2%. The jobless rate in the euro area rose to a record in January, climbing to 11.9%, data showed on March 1. Still, economic confidence in the euro area increased more than economists forecast in February. All European and Asian stock markets are better today. With global equity markets rallying today it is interesting that there is no major selling in the US treasury markets; prices are lower and rate higher this morning but only slightly. The Fed’s plan to continue its $85B of purchases of treasuries and mortgages is supporting any major increase in rates presently. Also, although this morning the stock market is pushing new highs, there is still a lot of conviction the US stock markets are due for a pullback. The only data today, the Feb ISM services sector index expected at 55.0 frm 55.2 in Jan. More fuel for the stock market; the index increased to 56.0, the highest since Feb 2012. The employment component however did slip a little, frm 57.5 to 57.2, still above 50 indicating expansion. The reaction sent the DJIA to new interday highs. The 10 yr and MBSs saw little reaction to the report.

Mortgage Rates

Mortgage Raes Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com Early today a slightly better open in the US bond and mortgage markets but by 9:00 the gains were erased with the 10 -3/32 at 1.86% after trading at 1.84% early this morning; 30 yr MBSs at 8:30 +6 bp, at 9:00 -3 bp . Stock index futures trading pointing to a lower opening at 9:30 but not much; fell on concern changes in China’s government policy may slow growth and hurt the global recovery. China cracking down on exploding real estate prices; the government ordered stricter real-estate curbs and service industries’ growth slowed. The Shanghai index fell the most in 3.5 years on the report. At 9:30 the DJIA opened -27, NASDAQ -10, S&P -4; 10 yr note -3/32 at 1.86% +1 bp after 1.84% earlier this morning and 30 yr MBSs unchanged frm Friday’s close. There are no economic reports today. The DJIA is still trying to break into new all-time highs, not yet able to break it. Last Thursday the index came within 40 points of the high but failed and backed away; the high is 14,164, the index closed Friday at 14,090. This is employment week; Friday the Feb employment data, according to early estimates, will sow non-farm jobs increased 171K with non-farm private jobs up 195K and the unemployment rate down to 7.8% frm 7.9% the last couple of months. Meantime on Wednesday ADP will report its private job growth at +173K. The Fed continues to debate the QEs; Janet Yellen, the Fed’s vice chairman saying the Fed should press on with $85B in monthly bond buying while tracking possible costs and risks from the unprecedented program. “Turning to the potential costs of the Federal Reserve’s asset purchases, there are some that definitely need to be monitored over time,” Yellen said today. “At this stage, I do not see any that would cause me to advocate a curtailment of our purchase program.” … “At this stage, there are some signs that investors are reaching for yield, but I do not now see pervasive evidence of trends such as rapid credit growth, a marked buildup in leverage, or significant asset bubbles that would clearly threaten financial stability.”… “Ending asset purchases before observing a substantial improvement in the labor market might also create expectations that the amount of accommodation provided would not be sufficient to sustain the improvement in the economy.” ….“Moreover, a weakening of the economic environment could also create significant financial stability risks.” A few others at the Fed are not so sure; Fed Governor Jeremy Stein said last month that some credit markets, including leveraged loans and junk bonds, show signs of overheating. Kansas City Fed President Esther George has warned that prices of some farm land have hit “historically high levels.” Sequester took affect Friday; after weeks of scaring hell out of everyone with dire comments of 170K job losses, delayed airline flights, the military stripped to the bone of readiness and teachers on bread lines; now that it has happened more clear headed comments are emerging from the White House saying it will take months to implement the required cuts…not so dire considering in the end while cuts will likely occur there are more realistic ways of implementation than what had been touted. One thing that could be done is to allow agencies to re-budget and eliminate the hard detailed specifics built into the legislation. You don’t cut a budget by starting with firing the president and management (teachers, air traffic controllers, construction workers), you start with cutting fat, and in Washington there is plenty of that. The end game though is that there will not likely be many that will lose their jobs. Not a good idea for either political party. Coming next; on March 27th the government will be out of money…again. This month will have plenty of volatility as our “leaders” work to avoid a government shutdown that will furlough many government workers. The bellwether 10 yr note is holding at 1.85% so far after 4 attempts unable to break the now strong resistance level. Both the bond and mortgage markets are registering overbought level based on the momentum oscillators suggesting the possibility of consolidation at these levels with potential increases in rates. That said we remain constructive over the longer view; however, as we have noted here, we are not expecting interest rates will decline much more frm current levels….maybe 10 more basis points in yield for the 10 yr note.

Mortgage Rates

Mortgage Rates Anthony Hood Equity Investment Capital Office: 949-891-0067 Email: tony@equityinvestmentcapital.com website: www.equityinvestmentcapital.com US stock indexes failed to run to new highs (DJIA) yesterday, getting to 40 points of a new all-time high the index failed and selling took the index back to 110 points frm a new high. Early this morning in pre-market trade the DJIA -63. At 8:30 Jan personal income, thought to be -2.4%, declined 3.6%; personal spending was right on estimates +0.2%, Dec spending revised to +0.1% frm +0.2%. Dec income unchanged frm original data, +2.6%. The decline in income somewhat of a surprise but there was no reaction to the lower income in markets. The decline in income, the most in 20 years, was likely due to businesses paying bonuses and dividends earlier than usual to avoid increases in taxes that kicked in Jan which is normally a strong month for incomes. The decline in income cut the savings rate to 2.4%. US bonds and MBSs rallying this morning on weak stocks and soft data out of Europe showing unemployment increased and manufacturing declined. The German bund at its lowest rate in two months as investors seek safety; 1.41% reflecting increased concerns in the EU with Italy’s messy election and economic data worsening. Unemployment increased to 11.9% in Jan, the highest since 1995. In the US the 10 yr note yield at 9:00 sat at 1.86% down 3 bp and at its first technical resistance hurdle. MBS prices at 9:00 +12 bp for 30 yr mortgages. At 9:30 the DJIA opened down 40, NASDAQ +16, S&P -6; 10 yr note 1.86% -2 bp; 30 yr MBS price +17 bp frm yesterday’s close. The U. of Michigan consumer sentiment index at 9:55, expected at 76.0 frm 76.3, the index was up to 77.6 and mirroring the increase in the consumer confidence index reported on Monday. The national ISM manufacturing index at 10:00 expected at 52.8 frm 53.1, the index increased to 54.2. The index the highest since June 2011; all the interior components also better than thought. The initial reaction improved stock indexes, at one point about 9:45 the DJIA was off over 100 points, at 10:05 -49 points. January construction spending also at 10:00, expected +0.6%, declined 2.1%. Quite a surprise, Dec spending was revised to +1.1% from +0.9%. This is sequester day, the day that has been characterized by many that the US starts an economic decline; layoffs, increased unemployment, 1000s of flights canceled, construction workers in the military sector all unemployed, thousands of dilapidated bridges will collapse, teachers jettisoned, children with no early education or child care----and the list goes on. Baloney! The sequester is a serious issue, however those scare tactics are ridiculous. Most of the dire forecasts will not occur; a ploy that has been the hallmark of any legislation for the last four years, the sky is falling strategy employed in Washington in place of sound debate to resolve many growing problems. Use the media, people will believe anything from media. According to the latest poles, only one in four actually know much about the sequester other than what they are fed. Certainly markets don’t care much and ignore the politicking and grandstanding. The more serious issue is on Mach 27th, the government will run out of money. If so a government shutdown will occur. Expect the next few weeks to be littered with mud, the President adding to his frequent flier miles, and Republicans attempting to appeal to tea party far out right wingers. The 10 yr note is trading at its first level of resistance at 1.85%. Three times this week the note fell to that level but was unable to break through. A break below will set up a run to 1.81% where the 100 day average resides. Still holding that rates will decline but also that they won’t decline much more than 1.75% on the 10 unless the EU trips into more trouble. Continue to expect increased volatility in the equity arena and in urn in the bond markets.